Signed contracts on existing homes dropped a sharp 5.5% in December from the previous month and fell 5% from the prior year, according to the National Association of Realtors.
The drop followed four straight months of gains and is the index was at its lowest level since August.
These so-called pending sales are an indicator of future closings and are the most current indicator of activity in the market. Buyers out shopping in December were facing a big jump in mortgage interest rates, which may have dampened demand.
The average rate on the 30-year fixed mortgage went from a low of 6.68% on Dec. 6 to a high of 7.14% on Dec. 19. Realtors had been saying that buyers were getting used to a “new normal” of higher interest rates, but the 7% mark appears to be an emotional barrier for buyers.
Sales of newly built homes, which are also based on signed contracts, saw gains in December, according to the U.S. Census, but homebuilders have been aggressively buying down mortgage rates to get customers in the door.
Pending sales fell in all regions, with the West and Northeast seeing the biggest monthly drops with decreases of 8.1% and 10.3%, respectively. Those regions are where home prices are highest.
“Contract activity fell more sharply in the high-priced regions of the Northeast and West, where elevated mortgage rates have appreciably cut affordability,” said Lawrence Yun, chief economist for the Realtors. “Job gains tend to have greater impact in more affordable regions. It is unclear if heavier-than-usual winter precipitation impacted the timing of purchases.”
Prices are still stubbornly high and rising across the nation. Annual gains accelerated in the late fall and early winter, according to the latest read from the S&P Case Shiller national home price index.
Homebuying demand does not appear to be bouncing back at all in January. Mortgage applications to purchase a home last week were 7% lower than they were the same week one year ago, according to the Mortgage Bankers Association.
Homes are also selling at the slowest rate in five years, according to a new report from Redfin. As of the four weeks ending Jan. 26, the typical home listing that went under contract sat on the market for 54 days before the seller accepted an offer, the longest span since March 2020 and a week longer than this time last year.
The weakness comes as the supply of homes for sale is finally rising significantly. The number of newly listed homes jumped just over 37% in January compared with December, according to Realtor.com.
“The shift in seller activity could mark a turning point in the high mortgage rate-induced standoff between buyers and sellers,” said Danielle Hale, chief economist at Realtor.com. ”The uptick is likely due to some residual benefit from fall’s lower mortgage rates, which could fade.”